Camber Energy(CEI) - 2021 Q3 - Quarterly Report

PART I – FINANCIAL INFORMATION This part presents Camber Energy, Inc.'s unaudited consolidated financial statements and management's discussion and analysis for the periods presented ITEM 1. FINANCIAL STATEMENTS This section presents Camber Energy, Inc.'s unaudited consolidated financial statements, including balance sheets, statements of operations, cash flows, and changes in stockholders' equity, along with detailed notes explaining significant accounting policies, investments, debt, derivative liabilities, and subsequent events Consolidated Balance Sheets Provides a snapshot of the company's assets, liabilities, and stockholders' deficit at specific reporting dates Consolidated Balance Sheet Highlights (Unaudited): | Metric | September 30, 2021 | December 31, 2020 | | :----------------------- | :----------------- | :------------------ | | Total Assets | $32,779,361 | $16,815,251 | | Total Liabilities | $198,311,310 | $113,094,761 | | Derivative Liability | $174,864,402 | $93,981,234 | | Stockholders' Deficit | $(165,531,949) | $(102,225,562) | Consolidated Statements of Operations Details the company's revenues, expenses, and net income or loss over specific reporting periods Consolidated Statements of Operations Highlights (Unaudited): | Metric | 3 Months Ended Sep 30, 2021 | 3 Months Ended Sep 30, 2020 | 9 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2020 | | :------------------------------------ | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Oil and Gas Sales | $103,191 | $57,458 | $266,082 | $180,046 | | Total Operating Expenses | $1,023,497 | $885,100 | $4,271,528 | $3,239,340 | | Loss from Operations | $(920,306) | $(827,642) | $(4,005,446) | $(3,059,294) | | Loss on Derivative Liability | $(256,855,721) | $(17,930,335) | $(222,688,936) | $(37,516,652) | | Net Income (Loss) | $(264,555,523) | $(19,986,843) | $(246,495,102) | $(41,625,851) | | Net Income (Loss) Attributable to Common Stockholders | $(264,555,523) | $(19,986,843) | $(253,172,096) | $(45,497,700) | | Income (Loss) per Share - Basic and Diluted | $(1.63) | $(1.01) | $(3.10) | $(7.46) | Consolidated Statements of Cash Flows Summarizes the cash inflows and outflows from operating, investing, and financing activities Consolidated Statements of Cash Flows Highlights (Unaudited): | Metric | 9 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2020 | | :------------------------------------ | :-------------------------- | :-------------------------- | | Net Loss | $(246,495,102) | $(41,625,851) | | Change in Fair Value of Derivative Liability | $222,688,936 | $37,516,652 | | Net Cash Provided (Used) in Operating Activities | $(2,203,759) | $(2,940,774) | | Net Cash Provided (Used) in Investing Activities | $(11,000,000) | $(9,200,000) | | Net Cash Provided (Used) in Financing Activities | $17,500,000 | $11,000,000 | | Net Increase (Decrease) in Cash | $4,296,241 | $(1,140,774) | | Cash, End of Period | $5,164,789 | $1,112,965 | Consolidated Statements of Changes in Stockholders' Equity Outlines the changes in common stock, additional paid-in capital, and accumulated deficit over time Consolidated Statements of Changes in Stockholders' Equity Highlights (Unaudited): | Metric | December 31, 2020 | September 30, 2021 | | :------------------------------------ | :---------------- | :----------------- | | Common Stock (Shares Outstanding) | 25,000,000 | 249,563,410 | | Common Stock (Value) | $25,000 | $249,563 | | Additional Paid In Capital | $209,362,384 | $392,326,532 | | Accumulated Deficit | $(311,612,946) | $(558,531,949) | Notes to Consolidated Financial Statements Provides detailed explanations and additional information supporting the consolidated financial statements NOTE 1 RELATIONSHIP WITH AND OWNERSHIP OF VIKING ENERGY GROUP, INC. Details Camber's acquisition and investment in Viking Energy Group, Inc., and the planned merger - Camber acquired a 51% interest in Viking Energy Group, Inc. on December 23, 2020, for $10.9 million cash and cancellation of $9.2 million in promissory notes. This led to the appointment of Viking's CEO and CFO to Camber's leadership[16] - An additional 16,153,846 Viking shares were acquired on January 8, 2021, by issuing 1,890 shares of Camber's Series C Preferred Stock, which satisfied a $20.8 million secured promissory note from Viking to EMC Capital Partners, LLC[17][18] - A merger agreement was entered into on February 15, 2021, for Viking to become a wholly-owned subsidiary of Camber, with Viking common stock converting to Camber common stock and Viking Preferred Stock converting to Camber Series A Preferred Stock[19] - On July 29, 2021, Camber acquired an additional 27,500,000 Viking common shares for $11.0 million, which Viking used to acquire a 60.5% interest in Simson-Maxwell, Ltd., a carbon-capture system license, and for general working capital[26] - Camber accounts for its investment in Viking under the equity method, as it exercises significant influence but not control, partly due to the voting rights associated with Mr. Doris' Series C Preferred Stock being suspended until July 1, 2022[16][27] NOTE 2 – ORGANIZATION AND OPERATIONS OF THE COMPANY Describes Camber's primary business as an independent oil and natural gas company and the impact of COVID-19 - Camber is an independent oil and natural gas company focused on the acquisition, development, and sale of crude oil, natural gas, and natural gas liquids in Louisiana and Texas[28] - The company's operations have not experienced a significant adverse impact from COVID-19 due to limited production and non-operated properties, but a prolonged disruption could materially affect financial results and operations[29] NOTE 3 – LIQUIDITY AND GOING CONCERN CONSIDERATIONS Addresses the company's financial viability, highlighting significant losses and liabilities that raise going concern doubts Liquidity and Going Concern Metrics: | Metric | September 30, 2021 | September 30, 2020 | | :------------------------------------ | :----------------- | :----------------- | | Net Loss (9 months) | $(246,495,102) | $(41,625,851) | | Stockholders' Deficit | $(165,531,949) | N/A | | Total Long-Term Debt | $20,500,000 | N/A | | Working Capital Deficiency | ~$172.4 million | N/A | | Derivative Liability (Current) | $174.9 million | N/A | - These conditions raise substantial doubt about the Company's ability to continue as a going concern, dependent on generating future profitable operations, developing acquisition opportunities, and obtaining necessary financing[30] NOTE 4 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Outlines the key accounting principles and estimates used in preparing the financial statements, including fiscal year change, valuation hierarchy, and derivative liabilities - The Company changed its fiscal year from March 31 to December 31, with fiscal year 2021 commencing on January 1, 2021[31] - The Company uses a three-level valuation hierarchy for financial instruments, with significant inputs to its derivative liability relative to Series C Preferred Stock classified as Level 3 (unobservable inputs)[35] - The full cost method of accounting is used for oil and natural gas properties, capitalizing all acquisition, exploration, and development costs, and performing a quarterly 'Ceiling' test for impairment. No impairment expense was recorded for the periods presented[37][38] - Revenue from oil and gas sales is recognized when production is sold to a customer and control of the product has been transferred, fulfilling performance obligations under contracts[41] - The Series C Preferred Stock contains an embedded derivative liability related to the Conversion Premium and potential True-Up Shares, which are required to be recorded at fair value[44] NOTE 5 – OIL AND GAS PROPERTIES Details the accounting treatment and net carrying amounts of the company's oil and natural gas properties - Camber uses the full cost method for oil and natural gas producing activities, capitalizing all acquisition, exploration, and development costs[46] Proved Developed Producing Oil and Gas Properties, Net: | Date | Amount | | :----------------- | :------- | | December 31, 2020 | $74,877 | | September 30, 2021 | $71,272 | - No impairment expense was recorded for oil and gas properties for the three and nine months ended September 30, 2021 or 2020[46] NOTE 6 – INVESTMENT IN UNCONSOLIDATED ENTITIES Explains the company's equity method accounting for its investment in Viking Energy Group, Inc - The Company accounts for its investment in Viking Energy Group, Inc. under the equity method[46] Investment in Unconsolidated Entities (Viking): | Metric | September 30, 2021 | December 31, 2020 | | :------------------------------------ | :----------------- | :------------------ | | Carrying amount – beginning of period | $15,830,538 | $957,169 | | Investment in Viking | $29,900,000 | $20,274,909 | | Proportionate Share of (losses) | $(18,339,293) | $(5,401,540) | | Carrying amount - ending | $27,391,246 | $15,830,538 | NOTE 7 – ASSET RETIREMENT OBLIGATIONS Presents the carrying amounts and changes in the company's asset retirement obligations Asset Retirement Obligations: | Metric | September 30, 2021 | December 31, 2020 | | :------------------------------------ | :----------------- | :------------------ | | Carrying amount at beginning of period | $46,748 | $71,150 | | Accretion | $5,854 | $5,825 | | Carrying amount at end of period | $52,602 | $46,748 | NOTE 8 – LONG TERM DEBT Details the company's long-term debt obligations, primarily with Discover Growth Fund, and related default conditions Long-Term Debt Obligations: | Lender/Note | September 30, 2021 | December 31, 2020 | | :------------------------------------ | :----------------- | :------------------ | | Discover Growth Fund (Dec 11, 2020) | $6,000,000 | $6,000,000 | | Discover Growth Fund (Dec 22, 2020) | $12,000,000 | $12,000,000 | | Discover Growth Fund (Apr 23, 2021) | $2,500,000 | - | | Total Long-Term Debt | $20,500,000 | $18,000,000 | - All long-term debt notes are subject to cross defaults of the Company's Series C Preferred stock, but all instances of default have been settled as of the filing date[49] NOTE 9 – DERIVATIVE LIABILITIES Discusses the accounting for derivative liabilities embedded in the Series C Preferred Stock, including fair value changes and settlement - The Series C Preferred Stock contains an embedded derivative liability due to its potential conversion into a variable number of common shares, including a Conversion Premium and potential True-Up obligation[50][55] - On April 20, 2021, the Series C Stock Certificate of Designation was amended to require all conversions and dividends to be settled in common shares, removing the cash option and impacting the accounting treatment for the derivative liability[57][58] Derivative Liabilities (Series C Preferred Stock): | Metric | September 30, 2021 | December 31, 2020 | | :------------------------------------ | :----------------- | :------------------ | | Carrying amount at beginning of period | $93,981,234 | $77,636,666 | | Issued Series C preferred shares | $46,238,850 | $15,412,950 | | Change in Fair value | $222,688,936 | $41,878,821 | | Settlement of Obligation | $(188,044,268) | $(40,947,203) | | Carrying amount at end of period | $174,864,402 | $93,981,234 | NOTE 10 – RELATED PARTY TRANSACTIONS Discloses compensation arrangements with the company's CEO and CFO through their affiliated entities - The Company's CEO, James Doris, and CFO, Frank W. Barker, Jr., provide professional services through their affiliates (AGD Advisory Group, Inc. and FWB Consulting, Inc., respectively) at a rate of $20,000 per month each, commencing April 2021[60] NOTE 11 – COMMITMENTS AND CONTINGENCIES Outlines ongoing legal proceedings and potential liabilities faced by the company - The Company is involved in a lawsuit with Maranatha Oil Co. (filed November 2015) alleging breach of contract and fraud, seeking approximately $100,000, which the Company intends to defend[63] - A lawsuit with PetroGlobe and Signal Drilling (filed March 2019) alleging negligent misrepresentation and breach of contract, seeking over $600,000, was settled on January 31, 2020, with a $250,000 payment and transfer of C E Energy LLC[64] - Following a 'short report' in October 2021, a class action lawsuit was commenced against the Company, James Doris, and Frank Barker by shareholders alleging losses, which the defendants deny and are defending[65] NOTE 12 – REVENUE FROM CONTRACTS WITH CUSTOMERS Provides a breakdown of oil and gas revenue and the primary drivers for changes in revenue Total Oil and Gas Revenue from Customers: | Period | 2021 (USD) | 2020 (USD) | | :------------------------------------ | :--------- | :--------- | | Three months ended September 30 | $103,191 | $57,458 | | Nine months ended September 30 | $266,082 | $180,046 | - The increase in revenue is primarily a result of an increase in oil and gas realized prices in 2021[106][109] NOTE 13 – STOCKHOLDERS' EQUITY Details changes in the company's equity, including common and preferred stock issuances, designations, and warrants - During the nine months ended September 30, 2021, the Company issued 1,500,094 shares of restricted common stock for investor relations and marketing services, recognizing $1,494,858 in share-based compensation expense[67] - The Series A Convertible Preferred Stock is designated for future conversion of Viking Series C Preferred Stock upon the merger; no shares were issued or outstanding as of September 30, 2021[68] - The designations for Series B, Series E, and Series F Preferred Stock were terminated as no shares were outstanding[69][70][78] - The Series C Preferred Stock, initially sold in February 2020, was classified as temporary equity due to redemption features outside the Company's control and contains embedded derivatives[71] - Multiple amendments to the Series C Preferred Stock designation in 2021 clarified terms, mandated all dividends and conversion premiums be paid in common shares, and increased the number of designated shares[73][74] Estimated Common Shares Issuable for Series C Preferred Stock Conversion: | Date | Estimated Shares | | :----------------- | :--------------- | | September 30, 2021 | 470,776,764 | | December 31, 2020 | 109,666,626 | - Warrants were issued to Regal Consulting, LLC on April 26, 2021, entitling them to purchase 100,000 common shares at $0.705, expiring April 25, 2022[78] NOTE 14 – STOCK-BASED COMPENSATION Describes the company's stock incentive plans and the accounting treatment for stock-based compensation - The Company has three stock incentive plans (2010, 2012, 2014) to grant equity instruments to employees, consultants, and contractors[78] - Stock-based compensation cost is measured at the grant-date fair value using the Black-Scholes option pricing model and expensed over the vesting period[43][80] - The number of authorized common shares was increased from 25,000,000 to 250,000,000 on February 23, 2021[80] NOTE 15 – INCOME (LOSS) PER COMMON SHARE Presents the calculation of basic and diluted income or loss per common share for the reporting periods Income (Loss) Per Common Share (9 Months Ended September 30): | Metric | 2021 (USD) | 2020 (USD) | | :------------------------------------ | :--------- | :--------- | | Net Income (Loss) Attributable to Common Stockholders | $(253,172,096) | $(45,497,700) | | Weighted Average Common Shares Outstanding (Basic and Diluted) | 81,599,069 | 6,102,942 | | Income (Loss) Per Share - Basic and Diluted | $(3.10) | $(7.46) | NOTE 16 – SUBSEQUENT EVENTS Reports significant events occurring after the balance sheet date, including stock issuances, debt amendments, and new financing - On December 30, 2021, the Company increased its authorized common stock from 250,000,000 to 1,000,000,000 shares[82] - Between October 2021 and May 2022, the Company issued millions of common shares for Series C Preferred Stock conversions, including 38,185,136 'true-up' shares to Discover, and redeemed 1,664 Series C shares from EMC for $18.85 million[82][83] - On December 24, 2021, existing $20.5 million promissory notes with Discover Growth Fund were amended, extending maturity to January 1, 2027, increasing the conversion price to $1.50, and decreasing the interest rate to the WSJ Prime Rate[84] - The Company secured new financing, including a $1 million loan (paid in full January 2022) and a $25 million loan (received January 3, 2022) with warrants for 50 million common shares, and sold 10,544 shares of newly designated Series G Preferred Stock for $100 million (mostly via promissory notes from the investor) with warrants for 100 million common shares[85][86][87][88] - Following non-compliance with filing requirements, Discover and Antilles filed a Verified Complaint in March 2022, which was settled via an agreement approved by the Court on May 12, 2022, requiring the issuance of 'free-trading' common shares upon conversion[94][95] ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This section provides management's perspective on the company's financial condition and operational results, including an overview of its business plan, the status of the pending merger with Viking, a discussion of its going concern status, and a detailed comparison of financial performance for the three and nine months ended September 30, 2021 and 2020, highlighting critical accounting policies SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS Warns readers that the document contains forward-looking statements subject to risks and uncertainties, with no obligation to update - The document contains forward-looking statements subject to known and unknown risks, uncertainties, and other factors that may cause actual results to differ materially from projections[98] - The Company does not intend, and undertakes no obligation, to update any forward-looking statements, except as required by federal securities laws[98] PLAN OF OPERATIONS Outlines Camber's business strategy, focusing on oil and gas asset acquisition, enhanced recovery, and the pending merger with Viking - Camber is an independent oil and natural gas company engaged in the acquisition, development, and sale of crude oil, natural gas, and natural gas liquids in Louisiana and Texas[99] - The Company's growth strategy includes acquiring undervalued producing oil and gas assets, employing enhanced recovery techniques, implementing lower-risk drilling programs, pursuing cost-efficiencies, exploring strategic M&A, and hedging commodity risk[100] - A pending merger agreement with Viking Energy Group, Inc. will result in Viking becoming a wholly-owned subsidiary of Camber, with Viking common stock converting to Camber common stock[100] - Completion of the merger is subject to customary conditions, including stockholder and regulatory approvals, effectiveness of a Form S-4 registration statement, and NYSE American listing qualification[100][103] Going Concern Qualification Discusses the financial indicators that raise substantial doubt about the company's ability to continue as a going concern Going Concern Financial Indicators (September 30, 2021): | Metric | Amount | | :------------------------------------ | :------------- | | Net Loss (9 months) | $(246,495,102) | | Stockholders' Deficit | $(165,531,949) | | Working Capital Deficiency | ~$172.4 million | | Derivative Liability (Current) | $176 million | - These conditions raise substantial doubt about the Company's ability to continue as a going concern, dependent on generating future profitable operations, developing acquisition opportunities, and obtaining necessary financing[105] - Oil and gas price volatility due to geopolitical conditions and the global COVID-19 pandemic may continue to negatively impact the Company's financial position and results of operations[104] RESULTS OF CONTINUING OPERATIONS Compares the company's financial performance for the three and nine months ended September 30, 2021 and 2020 Financial Performance (3 Months Ended September 30): | Metric | 2021 (USD) | 2020 (USD) | Change (YoY) | | :------------------------------------ | :--------- | :--------- | :----------- | | Gross Revenues | $103,191 | $57,458 | +$45,733 | | Operating Expenses | $1,023,497 | $885,100 | +$138,397 | | Net Loss | $(264,555,523) | $(19,986,843) | $(244,568,680) | Financial Performance (9 Months Ended September 30): | Metric | 2021 (USD) | 2020 (USD) | Change (YoY) | | :------------------------------------ | :--------- | :--------- | :----------- | | Gross Revenues | $266,082 | $180,046 | +$86,036 | | Operating Expenses | $4,271,528 | $3,239,340 | +$1,032,188 | | Net Loss | $(246,495,102) | $(41,625,851) | $(204,869,251) | - The significant increase in net loss for both periods is primarily a result of the Company's stock price and its impact on derivative liabilities[106][110] CRITICAL ACCOUNTING POLICIES AND ESTIMATES Highlights the key accounting policies and estimates that require significant judgment and can materially affect financial reporting - The Company uses the full cost method for oil and natural gas properties, capitalizing all acquisition, exploration, and development costs, and performing a quarterly 'ceiling' test for impairment[112][113] - Estimates of proved reserves are subjective and materially impact depreciation, depletion, amortization, and accretion (DD&A) expense, based on SEC guidelines and 12-month average commodity prices[113] - Asset retirement obligations (ARO) are recorded as a liability at their estimated present value, representing future costs to plug, abandon, and remediate producing properties[114] - Derivative liabilities related to Series C Preferred Stock, including the Conversion Premium and potential True-Up shares, are valued at fair value using complex binomial pricing models due to variable conversion terms[115][118] ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK As a smaller reporting company, Camber Energy, Inc. is exempt from providing quantitative and qualitative disclosures about market risk under Rule 12b-2 of the Securities Exchange Act of 1934 - The Company is a smaller reporting company and is not required to provide quantitative and qualitative disclosures about market risk[119] ITEM 4. CONTROLS AND PROCEDURES The company's disclosure controls and procedures were deemed ineffective as of September 30, 2021, due to material weaknesses including insufficient staff for segregation of duties, lack of internal resources for complex accounting issues, and inadequate senior management oversight. Management is actively addressing these weaknesses - The Company's disclosure controls and procedures were not effective as of September 30, 2021[120] - Material weaknesses identified include insufficient staff for segregation of duties, lack of internal resources for complex accounting issues (e.g., Series C Preferred shares), and inadequate competent accounting staff and senior management oversight[120] - Management is addressing these material weaknesses by hiring additional staff and seeking assistance from subject matter experts for complex accounting advice[120] - There were no changes in Internal Control Over Financial Reporting during the quarter ended September 30, 2021[120] PART II – OTHER INFORMATION This part includes disclosures on legal proceedings, risk factors, equity sales, defaults, and exhibits ITEM 1. LEGAL PROCEEDINGS As of September 30, 2021, the company reported no pending or threatened lawsuits expected to have a material effect on operations. However, subsequent to this date, a class action lawsuit was initiated against the company and its executives following a 'short report,' which the company intends to defend - As of September 30, 2021, there were no pending or threatened lawsuits that could reasonably be expected to have a material effect on the results of operations[123] - In early October 2021, the Company became the target of a 'short' report, resulting in a class action lawsuit against the Company, James Doris, and Frank Barker by shareholders alleging losses, which the defendants deny and are defending[123] ITEM 1A. RISK FACTORS As a smaller reporting company, Camber Energy, Inc. is exempt from providing risk factor disclosures under Rule 12b-2 of the Securities Exchange Act of 1934 - The Company is a smaller reporting company and is not required to provide risk factor information under Rule 12b-2 of the Securities Exchange Act of 1934[124] ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS. During the three months ended September 30, 2021, Camber Energy, Inc. issued a substantial number of unregistered common shares, primarily for the conversion of Series C Preferred Stock and for consulting services, relying on exemptions from registration under the Securities Act of 1933 - The Company issued 10,360,076 shares of common stock to a preferred stockholder for prior conversions of Series C Preferred Stock[125] - The Company issued 148,922,664 shares of common stock to another preferred stockholder for conversions of Series C Preferred Stock[125] - The Company issued 4,874,703 shares of common stock to a third preferred stockholder for conversions of Series C Preferred Stock[125] - The Company issued 450,000 shares of common stock to a consultant for services provided[125] - These issuances were made in reliance on exemptions from registration provided by Sections 3(a)(9), 4(a)(1), and 4(a)(2) of the Securities Act of 1933, as amended, and/or Rule 144[125] ITEM 3. DEFAULTS UPON SENIOR SECURITIES The company reported no defaults upon senior securities during the period - No defaults upon senior securities were reported[125] ITEM 4. MINE SAFETY DISCLOSURES The company reported no mine safety disclosures - No mine safety disclosures were reported[125] ITEM 5. OTHER INFORMATION This section serves as a general placeholder for other information, with no specific details provided in the report content for this item - No specific other information was provided under this item[125] ITEM 6. EXHIBITS This section lists the exhibits accompanying the 10-Q report, including required certifications from the Principal Executive Officer and Principal Financial and Accounting Officer, as well as XBRL (Extensible Business Reporting Language) information - Exhibits include certifications of the Principal Executive Officer and Principal Financial and Accounting Officer as required by the Sarbanes-Oxley Act of 2002 (Rules 13a-14(1) or 15d-14(a) and Section 906)[126][127] - XBRL (Extensible Business Reporting Language) information, including instance document and taxonomy extensions, is furnished[127] ITEM 7. OFF BALANCE-SHEET ARRANGEMENTS The company reported that it had no off-balance-sheet arrangements during the period - No off-balance-sheet arrangements were reported[126] SIGNATURES The report is officially signed by Camber Energy, Inc.'s Principal Executive Officer, James Doris, and Principal Financial and Accounting Officer, Frank W. Barker, Jr., both dated May 19, 2022 - The report was signed by James Doris, Principal Executive Officer, and Frank W. Barker, Jr., Principal Financial and Accounting Officer, on May 19, 2022[130]